Defaulted Student Loans

Pursuant to a congressional request, GAO reviewed the methods used by the Department of Education and state or nonprofit loan guaranty agencies to collect defaulted student loans. GAO found that: (1) guaranty agencies provide preclaims assistance to lenders, process lenders’ claims, collect loans, prepare forms for Education, and perform litigation of defaulters; (2) guaranty agencies’ standard procedures for collecting defaulted student loans were less stringent than Education regulations; (3) agencies differed in how they credited defaulter payments to an individual’s outstanding balance; (4) 86 percent of the agencies used an average of 5 private collection contractors; (5) 79 percent of the agencies had difficulty enforcing legal judgments against defaulters; (6) the use of administrative offsets or wage garnishment procedures was limited by state law; and (7) the most successful collection techniques were reporting defaulters to credit bureaus, using private collection contractors, and contacting borrowers by telephone.